LATIN AMERICA 1st QUARTER 2017 LATIN AMERICA OUTLOOK 1Q2017 Main - - PowerPoint PPT Presentation

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LATIN AMERICA 1st QUARTER 2017 LATIN AMERICA OUTLOOK 1Q2017 Main - - PowerPoint PPT Presentation

May 10, 2023 115 likes •362 views

LATIN AMERICA OUTLOOK 1Q2017 OUTLOOK LATIN AMERICA 1st QUARTER 2017 LATIN AMERICA OUTLOOK 1Q2017 Main messages The global economy still points to Markets recover in South America higher growth, but also more since January, supported

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LATIN AMERICA OUTLOOK │ 1Q2017

LATIN AMERICA

OUTLOOK

1st QUARTER 2017

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LATIN AMERICA OUTLOOK │ 1Q2017

2

The global economy still points to higher growth, but also more uncertainty and significant risks in the long run. South America will grow 1% in 2017 and leave 4 years of deceleration behind. Mexico is on the receiving end of uncertainty about US economic policies. Growth falls to 1% in 2017 Markets recover in South America since January, supported by commodity prices. But asset prices still under pressure in Mexico Interest rates will fall further in South America in 2017. But Mexico will continue to tighten monetary policy given rising inflation.

Main messages

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LATIN AMERICA OUTLOOK │ 1Q2017

GLOBAL

Stronger growth, higher uncertainty

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LATIN AMERICA OUTLOOK │ 1Q2017 LATIN AMERICA OUTLOOK │ 1Q2017

GLOBAL GROWTH

Increasing global growth

4 Source: BBVA Research

GLOBAL GROWTH (% qoq at annual rate) (Forecasts based on BBVA-GAIN model)

  • Better-than-expected data in Q3 in

US and China, and stable in Europe

  • Recovery of industrial production and

international trade

  • Increasing confidence levels
  • Global growth will increase from

3,0% in 2016 to 3,2% in 2017 and 3,3% in 2018

GLOBAL

0.3 0.5 0.7 0.9 1.1

Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17

CI 20% CI 40% CI 60% Point Estimates Period average

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LATIN AMERICA OUTLOOK │ 1Q2017

GLOBAL UNCERTAINTY

Biggest uncertainty is the future course of US economic policy and its global effects

5

GLOBAL

Global inflation Central banks and exchange rates Global growth

International relations

  • Fiscal policy priorities? Tax cuts vs increased

spending

  • Effect of fiscal stimulus on growth and

inflation? Fiscal expansion comes at time of small room for extra growth

  • Which protectionist measures?, When will

they be implemented? What impact?

  • What will be the reaction from other countries

(e.g. China)?

  • Which sector will be deregulated and how?
  • What will be the impact of policy changes on

potential growth?

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LATIN AMERICA OUTLOOK │ 1Q2017 LATIN AMERICA OUTLOOK │ 1Q2017

INTERNATIONAL FINANCIAL MARKETS

Temporary increase of stress in emerging financial markets (especially Latam), after US elections

6 Source: BBVA Research

BBVA FINANCIAL STRESS INDEX (normalized)

  • Financial stress in emerging

economies rose significantly after US

  • elections. But increase was

temporary, especially in South

  • America. Stress still lingers in China.
  • In contrast, financial stress remain

limited in developed markets.

SITUACIÓN LATINOAMÉRICA │ 4T2016 GLOBAL

  • 2.0
  • 1.0

0.0 1.0 2.0 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Latam Asia Developed

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LATIN AMERICA OUTLOOK │ 1Q2017

COMMODITY PRICES

Commodity prices in line with a gradual recovery going forward. Recent price increase driven by fundamentals

7 Source: BBVA Research and Bloomberg

  • Oil prices increase faster than expected, given OPEC
  • agreement. Copper prices benefit from financial speculation

and robust fundamentals, especially stronger demand

BRENT OIL (USD/B)

GLOBAL

SOYBEANS (USD/ton) COPPER (USD/lb)

  • No significant changes in long-term view for commodity

prices, but we anticipate a slightly faster convergence to those long-run levels.

20 30 40 50 60 70 80 90 100 110 120 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018 3Q2018 1Q2019 3Q2019 1Q2020 3Q2020 Forecast in November 2016 Forecast in February 2017 300 350 400 450 500 550 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018 3Q2018 1Q2019 3Q2019 1Q2020 3Q2020 Forecast in November 2016 Forecast in February 2017 2 2.2 2.4 2.6 2.8 3 3.2 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 1Q2017 3Q2017 1Q2018 3Q2018 1Q2019 3Q2019 1Q2020 3Q2020 Forecast in November 2016 Forecast in February 2017
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LATIN AMERICA OUTLOOK │ 1Q2017

US

Growth revised down in 2016

8

US: GDP GROWTH (%)

  • Growth revised up in 2017:
  • 1. Lower downward pressure on

growth from primary sectors and construction

  • 2. Solid employment and wage

growth, and recovery of business profits

  • 3. Confidence improves, together

with market expectations

  • Fed: we expect two more rate hikes

during 2017 and additional two in 2018, until 1.75%, given higher growth and inflation, but Fed will remain cautious.

  • Uncertainty about economic

policies.

Source: BBVA Research

GLOBAL

1.7 2.4 2.6 1.6 2.3 2.4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2013 2014 2015 2016 2017 2018 feb-17 dec-16

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LATIN AMERICA OUTLOOK │ 1Q2017

CHINA

Stability gains priority over growth.

9 Source: BBVA Research

  • China continues stimulus to ensure

growth in the short run.

  • Additional monetary measures are

postponed, to curb the housing bubble, while macro-prudential measures are brought forward and fiscal policy continues supporting growth

  • Risks remain high:
  • 1. Private corporate leverage and

lack of reforms in State-owned enterprises (SOEs)

  • 2. Real estate market
  • 3. Capital outflows and exchange

rate depreciation spiral

  • 4. Shadow banking
  • 5. Geopolitical risks
  • 6. US trade policy

CHINA: GDP GROWTH (%)

GLOBAL

7.8 7.3 6.9 6.7 6.0 5.2 3.0 4.0 5.0 6.0 7.0 8.0 2013 2014 2015 2016 2017 2018 feb-17 dec-16

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LATIN AMERICA OUTLOOK │ 1Q2017

GLOBAL RISKS

Global risks most relevant for Latam centered around China and protectionism

10 Source: BBVA Research

GLOBAL SITUACIÓN LATINOAMÉRICA │ 1T2017

Expanding populism Protectionism China’s imbalances Geopolitical risks US China

Europe

South America Mexico

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LATIN AMERICA OUTLOOK │ 1Q2017

LATAM

North-south divergence

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LATIN AMERICA OUTLOOK │ 1Q2017 LATIN AMERICA OUTLOOK │ 1Q2017

Financial markets recover in South America, but pressure continues in Mexico

12 Source: BBVA Research, Bloomberg and Haver

  • Main asset prices and exchange

rates registered losses after US elections, especially in Mexico

  • After initial shock, markets recovered

since end of 2016. Asset prices in South America managed to recover levels seen before US elections

  • Mexican asset prices recovered

since January 20, but still remain below levels seen at the beginning of November.

LATAM

LATAM MAIN ASSET PRICES: CHANGE SINCE DAY BEFORE US ELECTIONS (%)

  • 30
  • 25
  • 20
  • 15
  • 10
  • 5

5 10 15 ARG BRA CHI COL MEX PAR PER URU Tipo de cambio Mercado bursátil Prima de riesgo país

* Change from November 7 until February 6. Exchange rate: local currency vis-a-vis US dollar. An increase represents a depreciation. Country risk premium: EMBI.

Exchange rate Stock exchange Country risk premium

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LATIN AMERICA OUTLOOK │ 1Q2017

Stable FX or moderate depreciations going forward

13 Source: BBVA Research and Haver

  • FX depreciated in most countries in

the region, after the US elections but corrected afterwards in South America, helped by rising commodity prices.

  • Going forward, we anticipate

moderate depreciations in South America, given smaller interest rate differentials with the US.

  • Volatility could return to FX markets,

depending on economic policies finally adopted in the US.

LATAM

EXCHANGE RATE TO THE US DOLLAR (Index Dec 2014=100) depreciation vis-à-vis US dollar

70 90 110 130 150 170

dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 . ARG BRA CHI COL MEX PAR PER URU

Forecast Actual

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LATIN AMERICA OUTLOOK │ 1Q2017

Confidence drops sharply in Mexico, but remained stable (though pessimistic) in South America

14 Source: BBVA Research and Haver

  • Confidence still at low levels in many countries (but Peru),

but recover in households in South America, given falling inflation

LATAM

LATAM: CONFIDENCE INDEXES (HOUSEHOLDS AND FIRMS) (values over 50 indicate optimism)

  • In Mexico, falling confidence is directly related to

uncertainty about US economic policies and rising inflation

20 25 30 35 40 45 50 55 60 65 70 sep-14 ene-15 may-15 sep-15 ene-15 may-16 sep-16 ene-17 sep-14 ene-15 may-15 sep-15 ene-15 may-16 sep-16 ene-17 sep-14 ene-15 may-15 sep-15 ene-15 may-16 sep-16 ene-17 sep-14 ene-15 may-15 sep-15 ene-15 may-16 sep-16 ene-17 sep-14 ene-15 may-15 sep-15 ene-15 may-16 sep-16 ene-17 sep-14 ene-15 may-15 sep-15 ene-15 may-16 sep-16 ene-17 ARG BRA CHI COL MEX PER Consumer Producer

  • ptimism

pessimism

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LATIN AMERICA OUTLOOK │ 1Q2017 LATIN AMERICA OUTLOOK │ 1Q2017

Growth: different dynamics in Mexico and South America in 2017

15 Source: BBVA Research Latam: Weighted average for Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay and Venezuela

  • South America leaves behind 4

years of deceleration

  • Mexico gets the brunt of the

uncertainty about future US economic policies and will decelerate in 2017

  • Growth to increase in 2017 in South

America driven by:

  • The external sector, due to

depreciated exchange rates and improved terms of trade

  • Investment, especially in

Argentina, Peru and Colombia

  • Growth in 2017-18 will still be weak,

below potential.

LATAM

LATAM: GDP GROWTH (%y/y) 2.8 2.9 0.9

  • 0.3
  • 1.4

1.0 1.7 2.5

  • 3.0
  • 2.0
  • 1.0

0.0 1.0 2.0 3.0 4.0 2012 2013 2014 2015 2016 2017 2018 2019

Latam South America Mexico

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LATIN AMERICA OUTLOOK │ 1Q2017

Peru, Colombia, Argentina and Paraguay will display the strongest growth in the region in 2017-18

16 Source: BBVA Research,

LATAM COUNTRIES: GDP GROWTH (%)

  • Growth revised down in 2017 in

Argentina and Chile, given slow growth at the end of 2016.

LATAM

  • Growth revised down in Mexico in

2017-18, given uncertainty about US economic policies and tightening monetary policy

  • Growth revised down in Peru in

2017-18 given delays in key infrastructure projects (Southern gas pipeline)

  • 5.0
  • 4.0
  • 3.0
  • 2.0
  • 1.0

0.0 1.0 2.0 3.0 4.0 5.0 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 ARG BRA CHI COL MEX PAR PER URU Latam Mercosur Pacific Alliance Feb-17 Dec-16

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LATIN AMERICA OUTLOOK │ 1Q2017

Inflation continues to trend down in South America, but increases sharply in Mexico

17 Source: BBVA Research and Haver

LATAM: INFLATION AND CENTRAL BANK TARGET RANGES (%yoy)

  • Inflation to converge gradually to Central Bank targets in

South America, given light pressure from exchange rate depreciation and weak domestic demand

LATAM

  • Inflation will increase sharply in Mexico, pushed by

exchange rate depreciation and energy prices.

2 4 6 8 10 12 14 16 18 5 10 15 20 25 30 35 40 45 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 dic-15 dic-16 dic-17 dic-18 . Argentina (left) Brazil Chile Colombia Mexico Paraguay Peru Uruguay

Forecast Inflation Target

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LATIN AMERICA OUTLOOK │ 1Q2017

Lower inflation will allow for more further rate cuts in South America, but Mexico will have to keep tightening

18 Source: BBVA Research and Haver

OFFICIAL INTEREST RATES (%)

  • Lower inflation in South America and weak growth will

push central banks to continue cutting rates in coming months.

LATAM

  • In Mexico, Banxico will continue to increase interest rates

in 2017, at a faster pace than the Fed

2 4 6 8 10 12 14 16 5 10 15 20 25 30 35 40 jun-16 dic-16 jun-17 dic-17 jun-18 dic-18 jun-16 dic-16 jun-17 dic-17 jun-18 dic-18 jun-16 dic-16 jun-17 dic-17 jun-18 dic-18 jun-16 dic-16 jun-17 dic-17 jun-18 dic-18 jun-16 dic-16 jun-17 dic-17 jun-18 dic-18 jun-16 dic-16 jun-17 dic-17 jun-18 dic-18 jun-16 dic-16 jun-17 dic-17 jun-18 dic-18 . ARG (left) BRA CHI COL MEX PAR PER Actual Forecast

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LATIN AMERICA OUTLOOK │ 1Q2017 LATIN AMERICA OUTLOOK │ 1Q2017

Fiscal deficits continue to shrink

19 Source: BBVA Research and Haver

  • We anticipate a somewhat tighter

public expenditure in 2017, to fulfill fiscal rules

  • Despite this, we see some slack for

public spending in Colombia and Peru, given higher-than-anticipated tax resources.

  • Restricting public expenditure growth

seems inevitable in countries with scant or no fiscal space, having received a sizable negative shock to fiscal revenues from lower commodity prices

LATAM

LATAM: FISCAL BALANCE (%GDP)

  • 10
  • 9
  • 8
  • 7
  • 6
  • 5
  • 4
  • 3
  • 2
  • 1

2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 ARG BRA CHI COL MEX PAR PER URU Latam Feb-17 Dec-16

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LATIN AMERICA OUTLOOK │ 1Q2017 LATIN AMERICA OUTLOOK │ 1Q2017

External deficits continue to lower in most countries

20 Source: BBVA Research and Haver

  • Current account deficits continue to

shrink due to past exchange rate depreciations, weak domestic demand and gradual recovery of terms of trade

  • However, stronger growth in 2017

will slow down the external adjustment in the region

LATAM

LATAM: CURRENT ACCOUNT BALANCE (%GDP)

  • 5
  • 4
  • 3
  • 2
  • 1

1 2 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 ARG BRA CHI COL MEX PAR PER URU Latam Feb-17 Dec-16

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LATIN AMERICA OUTLOOK │ 1Q2017

21

The global economy still points to higher growth, but also more uncertainty and significant risks in the long run. South America will grow 1% in 2017 and leave 4 years of deceleration behind. Mexico is on the receiving end of uncertainty about US economic policies. Growth falls to 1% in 2017 Markets recover in South America since January, supported by commodity prices. But asset prices still under pressure in Mexico Interest rates will fall further in South America in 2017. But Mexico will continue to tighten monetary policy given rising inflation.

Main messages

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LATIN AMERICA OUTLOOK │ 1Q2017

ANNEX

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LATIN AMERICA OUTLOOK │ 1Q2017

Latin America GDP growth forecasts

23 f = forecast

LATAM

GDP (%y/y) 2014 2015 2016 2017f 2018f Argentina

  • 2.5

2.6

  • 2.2

2.8 3.0 Brazil 0.5

  • 3.8
  • 3.5

0.9 1.2 Chile 1.9 2.3 1.5 1.6 2.4 Colombia 4.4 3.1 1.9 2.4 3.3 Mexico 2.3 2.6 2.0 1.0 1.8 Paraguay 4.7 3.1 3.8 2.9 3.5 Peru 2.4 3.3 3.8 3.5 3.6 Uruguay 3.2 1.0 1.2 1.3 2.6 Mercosur

  • 0.4
  • 2.7
  • 4.3

0.5 1.2 Pacific Alliance 2.6 2.8 2.1 1.6 2.4 Latin America 0.9

  • 0.3
  • 1.4

1.0 1.7